Options Traders React as Twilio Stock Sells Off

TWLO options volume is pacing in the 99th annual percentile

Oct 16, 2018 at 2:59 PM
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The shares of Twilio Inc (NYSE:TWLO) are sinking today, after the cloud developer said it is buying mass emailing specialist SendGrid (SEND) in an all-stock deal valued at roughly $2 billion. After surrendering as much as 14% in early trading -- sending it straight to the short-sale restricted (SSR) list -- TWLO stock was last seen down 3.9% at $73.20.

Options traders have been quick to target Twilio amid the volatile price action. Around 23,000 calls and 15,000 puts have traded so far today, almost four times what's typically seen at this point in the day, and total options volume pacing in the 99th annual percentile.

The November 75 call is most active, and at least some of the volume appears to be the result of a three-way spread alongside the November 85 call and 60 put. Elsewhere, new positions are being initiated at the October 55 put and October 76 call, with these front-month options set to expire at this Friday's close.

Short-term options are pricing in elevated volatility expectations. TWLO's 30-day at-the-money implied volatility (IV) hit a 52-week peak earlier, and was last seen at 77.8% -- in the 98th annual percentile. Meanwhile, the stock's 30-day IV skew of 10.9% registers in the 92nd percentile of its 12-month range, indicating calls are currently cheaper than their put counterparts, from a volatility perspective.

Outside of the options arena, sentiment is mixed toward Twilio. Although SSR today, short interest on TWLO surged 20.6% in the most recent reporting period to 5.25 million shares -- representing 7.1% of the stock's float. However, all 16 covering analysts maintain a "buy" or better rating, while the average 12-month price target of $85.77 is a 14.6% premium to current trading levels.

Taking a closer look at the charts shows Twilio has put in a strong performance for most of the year, with the shares rallying off familiar support near $24 back in February to top out at a record high of $88.88 on Sept. 26. TWLO has since pulled back from this technical milestone, but is holding above its 80-day moving average -- a trendline that's had bullish implications in the past.

twlo stock daily price chart on oct 16


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